Leverage

Also seen as: gearing, multiplier, margin.

How much exposure does a leverage multiplier create?

Multiply the strategy's capital by the multiplier; anything above the capital is borrowed.

$$E = L \times C \qquad B = \max(L - 1,\; 0) \times C$$

where $L$ is the leverage multiplier, $C$ is the strategy's capital, $E$ is the resulting market exposure, and $B$ is the borrowed amount that has to be financed. Below 1.00× nothing is borrowed and the unused share of capital — $(1 - L) \times C$ — simply stays in cash: a 0.70× profile is 70% invested and 30% cash, with the same cash drag that any idle balance carries.

What are the leverage presets?

Four presets cover the range, with a slider for anything in between:

What does leverage cost?

Above 1.00×, the borrowed part is financed for as long as it is held. The rate charged is the margin-loan reference rate, a short-term interest rate, plus the borrowing rate markup, the spread described in the app as "Spread added above the broker rate when borrowing capital." — see interest-rate markups for both markups and their defaults.

That cost is charged only when the Costs & interests assumption is on. With costs off, a leveraged run shows the magnified gains and losses but none of the financing that produced them, which flatters leverage specifically. The Allocation card says so wherever an allocation borrows — a leverage above 1.00×, or a negative weight that sells short — with the grey note "With costs off, the levered return is higher than the real one": "As long as the analysis runs without costs, borrowed money pays no interest: the levered return comes out higher than the real one." The note appears on every plan and asks for no decision; see strategy alerts. The cost lands on the "Interest paid" line of the results — see interest received and paid.

What does leverage do to gains and losses?

It multiplies both, by the same factor and in the same direction. A market move of $r$ on the exposure is worth $L \times C \times r$ to the strategy, so at 1.50× a 10% move is worth 15% of capital whether the market went up or down. There is no asymmetry: the multiplier that magnifies a good year magnifies a bad one identically, and a leveraged strategy can fall further and faster than the same strategy at 1.00×.

The financing cost sits on top of that and does not care about direction. It is subtracted after a gain and added to a loss, so a leveraged run needs the magnified gain to clear the financing before it is ahead of the unleveraged version.

How does Fincanva handle it?

• The default is 1.00× (No leverage), and the field's own range is 0.00× to 3.00× — 3.00× is the most exposure a strategy's profile can hold, on any plan.
• Leverage above 1.00× is included from the Starter plan. Every plan has a leverage ceiling: 1.00× on Free, and 3.00× on Starter, Advanced, Ultimate and Professional. On Free the Leverage field is capped at 1.00×, so its range there is 0.00×–1.00×, with a tag naming the plan level that raises it. This is an app-side cap: the simulation engine carries no concept of a plan and applies none of this on its own. See what each plan includes.
• The Leverage field's range always matches your plan's ceiling — the one stated above.
• Every preset is listed on every plan. On Free, Moderate and Max sit above the ceiling: they carry the tag of the plan level that includes them, and choosing one changes nothing and opens a window that says how far your plan goes and what the next plan up allows.
• Moderate stays fixed at 1.50× on every plan. Anything else in between is reachable with Custom or the slider.
• A Combined can still go further than a single strategy's own leverage, through its invested portion above 100% and a volatility target, up to the shared 300% ceiling.
• Leverage belongs to an allocation profile, so a Risk-Off profile can carry a different multiplier from the Risk-On one — including Cash only — see Risk condition.
• The profile summary line prints the multiplier next to the allocation method, as in "· 1.50×".
• At Cash only (0.00×) no positions are opened at all; the run tracks an uninvested balance.
• Leverage is the strategy-level exposure control, and it is fixed: the same multiplier through calm and turbulent markets. How much of a Combined's capital reaches its strategies in the first place is the invested portion, a separate control at the Combined level that can itself go above 100%. A Combined can also let its exposure move with the market's volatility — that is a volatility target, sometimes called dynamic leverage.

What does it look like in practice?

A strategy with 10,000 of capital runs a year at 1.50× (Moderate). Its exposure is 1.5 × 10,000 = 15,000, of which 5,000 is borrowed. Suppose the reference rate is 4% and the borrowing markup is the default 1.5%, so the borrowed money costs 5.5% for the year: 5,000 × 5.5% = 275.

The same strategy at 1.00× would have made +1,000 or lost 1,000, with no financing at all. Leverage turned a 10-point market move into a 12.25-point gain or a 17.75-point loss — and the 275 was paid in both cases, which is why the downside is magnified by slightly more than the upside.

Leverage magnifies losses exactly as it magnifies gains. Fincanva does not recommend a leverage level or tell you whether to use leverage at all — see Is this financial advice?.